Your adjustable rate mortgage is ticking like a time bomb

Someone on the radio has made fantastic claims about eliminating fees, escrow payments, and all the other elements of a home sale that you found so distasteful last time.

You need cash for some unexpected expenses and to live the lifestyle commensurate with what you deserve, plus you’re sitting on a significant pile of equity. So why not refinance?

Whenever rates are low, refinancing tempts homeowners. Refinancing can make sense to lots of people who bought houses when rates were higher or who want to consolidate their bills.

Not everyone would benefit from refinancing, though. Some homeowners with second mortgages, a lot of debt or trouble paying bills on time might find that they would pay more by refinancing than by sticking with the loan they already have.

The relation between income and debt is strained for many people. Lots of homeowners have taken out second liens in the form of home equity loans and lines of credit or have perhaps borrowed more than their houses are worth in what is now a declining market. These folks will have trouble finding a lender that will refinance their mortgage at favorable rates.

Refinancing customers receive the same scrutiny they got when they took out their original mortgages. They're evaluated as to whether they meet credit and debt-to-income standards. That spells trouble to a once-stellar customer who has made a few late payments or whose credit card balances have skyrocketed, or whose income has fallen.

None of this will exclude someone from refinancing entirely. Almost any borrower can find a willing lender. The devil is in the details: Borrowers with smudged credit or other problems -- "nonconforming" is the term used in the trade -- may find the rates they qualify for today are either higher than the rates they already have, or not low enough to make refinancing worthwhile.

Even borrowers with good credit records have to beware of pitfalls like private mortgage insurance and stretching out a loan for too long. The moral: Look before you leap!